None Compute the value of a share of common stock of a companywhose most recentdividend was $5.00 and is expected to grow at 1.5 percent per year for the next5 years, after which the dividend growth rate will increase to 3 percent per yearindefinitely. Assume 15 percent required rate of return.

The problem involves the determination of the stock price by using the dividend discount model. The…

Answered: Compute the value of a share of common…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 8P

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Find the Dividend growth rate of a company, if its total book equity is 60 000, and the last year profit and reinvestment are correspondingly 18000 and 5400.
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The FI Corporation's dividends per share are expected to grow indefinitely by 6% per year. Required: a. If this year's year-end dividend is $5.00 and the market capitalization rate is 10% per year, what must the current stock price be according to the DDM? Note: Round your answer to 2 decimal places. b. If the expected earnings per share are $10.00, what is the implied value of the ROE on future investment opportunities? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. c. How much is the market paying per share for growth opportunities (i.e., for an ROE on future investments that exceeds the market capitalization rate)? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. a. Current stock price b. Value of ROE c. Amount % per share
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Compute the value of a share of common stock of a company whose most recent dividend was $5.00 and is expected to grow at 1.5 percent per year for the next 5 years, after which the dividend growth rate will increase to 3 percent per year indefinitely. Assume 15 percent required rate of return.